Three quarters of SME owners have never heard of relevant life plan or executive income protection, according to research from Legal & General.
However, the insurer also found when the benefits of these plans were clearly explained 85% of business owners were open to a discussion and finding out more about them.
L&G said the lack of knowledge of these products was a great opportunity for advisers, while other results also revealed businesses’ vulnerability to shocks and the need for advisers to form partnerships with accountants.
Jeff Woods, head of intermediary development at Legal & General, said: “Business owners are clearly open to advice and guidance from a professional so it makes sense for advisers to make the most of this gap in the market.”
The results were based on a survey of more than 500 UK SME owners carried out by independent market research consultancy Savanta in June.
The report found that nearly six in ten businesses (59%) said they would cease trading in less than a year of a key person dying or becoming critically ill.
The death of a business owner remained the top scenario for serious impacts on a business at 52% of responses.
Three-quarters (75%) of businesses surveyed said they had corporate debt or borrowing of some form, higher than the 51% in 2019, and 67% were borrowing more than £50,000, far higher than in 2019 (50%).
Use of financial advisers
The survey also showed that while businesses prefer to learn about protection through an accountant (30%) rather than through an adviser (28%), that gap is closing compared to 2019 where 36% of businesses opted for the accountant route compared to 21% preferring advisers.
Between 2019 and 2021 the level of businesses which preferred to research protection information through social media rose from 5% to 16%.
Of businesses prepared to spend to provide protection for themselves and the future of their firms, up to 72% were willing to spend £50 or more per month on cover and over half were willing to spend more than £250 per month.
The research also draws a link between the use of a financial adviser and the business type, value and age of the business.
Sole traders, businesses with profits below £50,000 or businesses less than two years old are the least likely to use a financial adviser.
Of those business that lack cover, more than four in 10 either did not see the need (46%) or had not considered it (17%).
Covid and the future
While for more than half of businesses (54%) surveyed Covid had a negative impact, the financial outlook for 12 months’ time looks better, with 57% feeling positive.
A fifth (22%) said business recovery from Covid was their main concern over the next two-to-three years. However, a third were planning on expanding their business.
While two in five (40%) businesses have an insurance policy to secure Covid borrowing, over half (55%) were using a form of personal security.
Almost a third of businesses (32%, rising to 72% for sole traders) do not have a succession plan in place and 41% would use cash savings as continuity or for disaster recovery – up from 23% in 2019.
Just 18% of firms would use an insurance policy to fund buying back a deceased business owner’s shares. Most intend to use the personal wealth of remaining owners (31%) or a bank loan (29%).
Commenting further on the findings, Woods said: “The report highlights there is greater optimism among UK SMEs than you may expect after such a tough time with Covid.
“However, it’s clear they are vulnerable to the loss of a keyperson with over half regarding it as the biggest scenario for serious impacts on their business.
“They are also vulnerable when considering the levels of debt they have and the personal security they have given in relation to the loans.
“Is it in their best interests to risk their personal wealth or their house as security or would it be a better solution to use insurance cover?”
Woods said he would urge SME business owners to consider the contingency plans they have in place and speak to a financial adviser urgently if they have no cover to protect themselves and their business in the event that a key employee becomes ill or dies.
“Even if there is business insurance in place it’s worth speaking with an independent adviser to ensure it matches the business’s current needs, while providing the cover and security required to help the business achieve its future plans and goals,” he added.
